California legislators bent budget laws, now Californians will pay

All but four states in the country have budget shortfalls. The smallest of these shortfalls is Vermont, and that comes in at $28 million. Yes, this is the smallest gap.

While we’re getting all-too accustomed to government debt and spending numbers in the billions it’s important to remember that millions still mean something. But speaking of billions, California’s got them covered. The budget shortfall in the state is $41.6 billion. That’s $41,600,000,000, the largest shortfall in the country.

When looking at the state’s budget laws, it would seem strange that things could get so out of hand. California provides several guiding boundaries to prevent out of control budgets and to contain any egregious fund appropriation before funds exist. From State Budget Solutions:

California is required to pass a “balanced budget.” California Code Section 13337.5 of state law prohibits the annual budget act from authorizing expenditures in excess of revenues. In 2004 the Constitution was amended to include language to specifically prevent the presentation of a budget bill that would appropriate from the General Fund more than that Fund would receive in revenues. California law forbids the carrying over of a deficit from one year to the next. The State only budgets for expenditures, not revenues.

The California Constitution limits appropriations to the appropriations limit from the previous year, adjusted for inflation and the change in population. This is commonly called “budgeting for fiscal discipline,” and is a way to keep the growth of appropriations from outpacing the growth in revenues from year to year.

So what happened? How could a state with such clear laws on responsible budgeting get out of hand? Well, the law is flexible if you know how to bend it:

Unfortunately, the most recently passed budget relies heavily on accounting maneuvers, including moving tax receipts from one year to a next and borrowing $5 billion against future lottery earnings. The lottery borrowing requires the approval of voters in a ballot measure in a special election the Spring of 2009. If the lottery plan is defeated, midyear cuts and other measures to rein in spending are likely. [from the Institute for Truth in Accounting]

The situation would be a lot less painful if legislators had followed the budget law instead of worrying about shortfalls now that the state is in crisis. At this point, any solution will hurt. For example, Governor Arnold Schwarzenegger has been fighting the state comptroller, trying to give paycuts to the state’s public employees. The governor’s administration went to court to try and force the comptroller to do this, but the judge sided with the comptroller. These cuts could translate to $455 a week, making the judge note that cuts would cause “undue harm” to the workers. But hasn’t the undue harm already been committed?

It’s time to rip off the bandaid. Thinking of spending cuts that won’t hurt people is inconceivable; legislators could have prevented this crisis by thinking about the consequences of their thoughtless use of public money. Now citizens will have to suffer for the lack of responsibility in their elects, those hired to look out California’s best interests.

Municipalities face budget woes

From California to Pennsylvania, local municipalities are facing crippling financial woes. This week Maywood, CA will be the first city to terminate all public employee jobs, including the police department. On the brink of bankruptcy, the city is trying to regain ground by outsourcing all of its work.

Maywood has also not be very forthcoming with its financial data, having not posted any information since 2008. Overall, the city scored a “D” on Sunshine Review’s transparency checklist.

Then there is Harrisburg, Pennsylvania. The capital of Pennsylvania is just over $68 million in the hole, more than its annual budget. Harrisburg is not only asking creditors to forgive or restructure old debt, but is also considering cutting 537 public sector jobs.

However, unlike Maywood, Harrisburg has been very forthcoming with its financial data, and earned a “C” transparency grade from Sunshine Review.

Looking at these two situations, one can see transparency is not enough. While many elements have contributed to the cities financial troubles, it could have been averted by vocal taxpayers. Yet, taxpayers had access to the data in Harrisburg, and many remained silent on the matter.

This is a clear example that while transparency is a tool citizens can use to hold their government accountable, but without active citizen watchdogs we’ll continue to see crisises like these. There remains a great need for local involvement by constituents. We can not be so focused on the federal level that we forget to look after our homes.

China’s Naked Government

For real estate the chant is “location, location, location.” I think for politics we can change this bit of wisdom to “local, local, local.” There are a lot of organizations out there that are chasing the Federal Government around demanding transparency, but what we forget is that at some point it’s all local.

Which is why I’m thrilled, but was not necessarily surprised, that a small town in the southern province of Sichuan, China, was the first to take the step towards a “naked government” by posting their budget online. True, it showed 65 percent of the budget went to entertaining government officials, but information is key to any reform.

Then, this past March, Guangdong, the province closest to Hong Kong and the “manufacturing heartland of China” also posted its budget online. This is the first step towards transparency by a major providence in China in 60 years!

Are we about to witness a transparency revolution in China? I sure hope so.